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Hightop’s CFO is considering whether to take on the new project which has average risk. He gathered the information given below:

i) The company has bonds outstanding that mature in 26 years with the annual coupon of 7.5 percent. The bonds contain the face value of $1,000 and sell in market today for $920. There are 10,000 bonds outstanding.

ii) The risk-free rate is 6%.

iii) The market risk premium is 5%.

iv) The stock’s beta is 1.2.

v) The company’s tax rate is 40%.

vi) The company has 50,000 shares of preferred stock with the par value of $100. These shares are presently trading at $105 and pay the annual dividend of $5.40.vii) The company also has 1,850,000 common shares trading at $25. These shares last paid the annual dividend of $0.93.

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